Germany 'natural' next place to go for SWFs

Availability of senior financing for real estate will remain tight for the next four to six years, John Carrafiell, managing partner of GreenOak Real Estate, said during a panel discussion at the inaugural DIC Asset Investors Day in Frankfurt on Thursday. ‘Banks have no choice but to shrink their balance sheets,’ he said, pointing to more stringent capital requirements for the sector. ‘I think it will be a long cycle, another four to six years. There’s no silver bullet to solve it quickly.’

Carrafiell estimates that the financing gap for securitised and bank debt in Europe comes to at least EUR 500 bn. ´Less than half will be available in senior financing,’ he pointed out. ‘This is the elephant in the room, we will need a significant amount of equity.’

Potential new sources of debt financing include European insurance companies such as Allianz, AXA and Aviva who are now entering the market along with more specialist players such as Duet, Starwood, Pramerica, Blackrock and Pimco. Sovereign wealth funds and banks from outside Europe could also play a role in the recapitalisation process, he said, adding that banks from Australia, Canada and China are in fact now looking at the market. ‘These are nascent new participants but the gap is still vast. The availability of senior financing will remain tighter than in the past. That is good for the market in the long term, but we still need more senior lenders.’

So far sovereign wealth funds from the Middle East and Asia have mainly been active in the UK. In 2009, Carrafiell advised on the recapitalisation of AIM-listed Songbird Estates, the majority owner of the Canary Wharf estate in London through a consortium led by sovereign wealth funds Qatar Holding and including China Investment Corporation (CIC). CIC is now reportedly partnering with private equity firm Blackstone to purchase an interest in the £1.4 bn (EUR 1.6 bn) property loan portfolio being sold by the Royal Bank of Scotland.

But these players are also relevant for the German real estate market, Carrafiell said. ‘We’ve seen investors from the Middle East in the UK, Germany is the next natural place to go.’ The Canadians are already providing equity in the US and increasingly in Europe, he added, pointing to the joint venture formed by Canada’s CPPIB with Westfield at its Stratford City mall in East London. ‘They have small teams and need to work with the best in class companies, specialist operators like Westfield, DIC and Unibail-Rodamco.’